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Tesla results will put China and supply chain in focus

October 21, 2021

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Wednesday’s corporate diary in London is relatively quiet, though one of the most followed stocks on both sides of the Atlantic is due to report later in the day: Tesla Inc (NASDAQ:TSLA).

Investors will be able to look under the bonnet of the new Texas resident at 4:30pm Central Time (10.30pm BST).

The main news from Elon Musk’s electric vehicles (EVs) and domestic battery storage company in recent weeks was that delivery numbers went up another gear in the third quarter, with 241,000 EVs shipped to customers.

Analysts on Wall Street estimate that will feed through to revenues of US$13.7bn and earnings per share to US$1.54 for the three months to end-September, from US$11.96bn/US$1.02 in Q2 this year, and US$8.77bn/US$0.76 in Q3 last year.

The big story that investors want to hear will be about how Tesla is coping with the shortage of semiconductors and other bottlenecks that affected the supply of airbags and seatbelts in the second quarter, leading to Musk pushing back the launch of the company’s Semi truck programme to 2022.

The biggest variable for improving Tesla’s automotive gross profit margins is how much production can come out of its Chinese Gigafactory, said analyst Dan Ives at broker Wedbush, given the efficiency and scale of this massive factory.

In coming quarters, cutting the opening ribbon for the Gigafactories in Austin, Texas and Berlin, Germany “will be key”, as demand for Tesla models currently outstrips supply by roughly 30,000 vehicles.

“We believe China demand rebounded in the quarter and is clear indicator of the step up in EV demand taking place globally with China leading the way,” said Ives.

“While there are many competitors in the EV space, Tesla continues to dominate market share as evidenced again this quarter while battling through the chip shortage and now is seeing rebounding China demand after facing headwinds earlier this year.”

Even analysts Barclays, who continue to express scepticism around Tesla’s “sky-high” market cap of around US$800bn, said they are “constructive” on the stock going into the earnings release as the strong recent delivery numbers should drive operating leverage and strong pricing.

“In short, Tesla was able to continue a healthy pace of production and deliveries despite the chip pressures most other major OEMs felt,” they said.

Inflation and other UK interests

Before UK investors get to hear from Elon, there are a few items on the London agenda to chew over.

With Bank of England policymakers talking up the chances of an interest rate hike, inflation data from the Office for National Statistics at 7am could prove market-moving.

With petrol prices, gas bills and food availability issues making headlines across the country, the last ONS update revealed August’s consumer price index (CPI) hit 3.2%, while the CPIH index that includes housing costs, was at 3%, meaning inflation is at its highest levels since January 2012.

In recent weeks, the BoE governor Andrew Bailey and new chief economist Huw Pill have acknowledged that prices could be higher than expected for longer than expected, and though market expectations of a rate hike in November have increased, it is not a done deal.

On the company diary, there is a production report from mining giants Antofagasta PLC (LSE:ANTO), whose shares were near an 11-month low around the start of the month but have jumped 16% since.

There is also an update from Segro (LSE:SGRO), the warehouse developer whose shares over 40% higher than they were before the pandemic.

In the first half of this year, the FTSE 100 group reported adjusted pre-tax profit up 19% to GBP168mln as adjusted NAV per share rose 12% and it boasted 1.3mln sq metres of projects in its development pipeline.